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South America's Best Stocks

Head south of the border for new investing ideas.

Chinese and Indian stocks? They're so last year. At least that seems to be the case according to more than 60,000 investors participating in Motley Fool CAPS, the Fool's free investing community.

In fact, there isn't a single Chinese or Indian company included in the top 50 stocks based on CAPS player ratings. Investors, it seems, are more bullish on stocks hailing from South America these days.

Christmas in JulyAnd even though it's currently winter south of the equator, the returns have remained hot -- the Colombian, Brazilian, and Chilean stock markets are up 17%, 49%, and 25%, respectively, so far this year.

Even the largest companies in the region, such as CVRD (NYSE:RIO) and Petroleo Brasileiro (NYSE:PBR), have prospered, returning 68% and 28% year to date.

Net Servicos de Comunicacao (NASDAQ:NETC), a Brazilian cable TV and broadband provider -- along the same lines as Comcast (NASDAQ:CMCSA) and Time Warner Cable (NYSE:TWC) here in America -- has risen 37% since January on top of a 75% jump in 2006.

Net Servicos is also currently the highest-rated stock in all of CAPS, with 185 of 187 investors expecting it to beat the market going forward. The most common reasoning among the bulls centers on revenue growth (which has nearly tripled since 2003), the large market opportunity for Brazilian TV and broadband, and a below-industry price-to-earnings ratio.

Here are the rest of the top South American stocks right now.

Company

Country

Net Servicos de Comunicacao

Brazil

Sadia

Brazil

Gerdau SA (NYSE:GGB)

Brazil

Metrogas

Argentina

Administadora Pension

Chile

Sociedad de Chile

Chile

Banco Bradesco (NYSE:BBD)

Brazil

Perdigao

Brazil

Companhia de Sanea

Brazil

Tele Norte Leste

Brazil

Data from Motley Fool CAPS.

Please bear in mind that these stocks are not formal recommendations, but are offered as jump-off points for further research.

But should you jump in? Over the past decade, South American countries such as Chile and Brazil have gone to great lengths to open up their markets and remedy flawed monetary and fiscal policies that formerly restrained their economies. As a result, inflation and unemployment have largely remained at reasonable levels throughout the region.

Now, all of this isn't to say that the region isn't without its flaws -- high levels of corruption, shaky corporate governance, and a stark gap between rich and poor are still major issues that need to be addressed in some parts of the continent.

Yet to completely dismiss South American stocks because of its current flaws may end up costing you in the long run. Political and economic risks certainly exist, but that is an inherent part of investing in developing markets. The growth potential is obvious, so if you can handle a bit of volatility in your portfolio, South American stocks are definitely worth considering.

What do you think about South American stocks? Or any stock for that matter? More than 60,000 investors participating in Motley Fool CAPS are waiting to hear what you have to say. To make your voice heard, head on over to CAPS right now!

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Fool contributor Todd Wenning is currently ranked 685 of 60,000 CAPS players. He does not own shares of any company mentioned. Sadia is a Motley Fool Hidden Gems pick. The Fool has a disclosure policy.